Our Take: Biochar – Black Gold

Written by Jay Tipton

If you have not been paying attention to biochar, now is the time to start. Although, you won’t have to try too hard because it is all over climate finance and carbon market news.

In recent months, the biochar sector has seen a steady stream of news from around the globe, including the launch of new initiatives, deals being struck, acquisitions of carbon credits, and predictions for market developments ahead. This activity underscores the growing importance of biochar as one of the most innovative and promising approaches to carbon capture, climate finance, and helping ecosystems.

This surge of interest and investment in biochar warrants a deeper exploration of the subject.

Biochar: Explained

Biochar is a carbon-rich material produced from the thermal decomposition of organic matter, such as plant materials and agricultural waste, in an environment with limited oxygen. This process, known as pyrolysis, transforms the biomass into a stable form of carbon, preventing it from decomposing and releasing carbon dioxide (CO2) back into the atmosphere for hundreds or even thousands of years. The resulting product is a lightweight, black substance. Biochar’s stability and structure are what make it valuable, particularly in applications aimed at carbon sequestration and soil amendment (Figure 1).

Pyrolysis is conducted in a specially designed furnace or kiln that heats the biomass at temperatures ranging from 300 to 700 degrees Celsius, in the absence of oxygen to prevent combustion. This process breaks down the molecular structure of the biomass, leaving behind biochar while also producing bio-oil and syngas, which can be captured and used as energy sources. The specific characteristics of biochar can be adjusted by varying the temperature and duration of the pyrolysis process, as well as the type of biomass used, tailoring the biochar to specific uses.

Biochar has a multifaceted impact on the environment and ecosystems. Its most heralded benefit is its ability to combat climate change by sequestering carbon. When incorporated into soil, biochar can significantly reduce greenhouse gas (GHG) emissions from the soil and improve soil health by increasing water retention, reducing nutrient leaching, and enhancing microbial activity. These improvements can lead to increased agricultural productivity and reduced reliance on chemical fertilizers, fostering more sustainable farming practices. Biochar also has water filtration properties which can help in water purification by adsorbing toxins and pollutants.

Thanks in part to all of these excellent benefits, we see the current strong interest in biochar carbon credits.

Biochar in Carbon Markets

The Intergovernmental Panel on Climate Change (IPCC) has laid out scenarios that incorporate 6-10 gigatons (Gt) of carbon dioxide removal (CDR) in the second half of the century, targeting net-zero emissions. This outlook calls for durable CDR methods, such as biochar, which will be crucial for counterbalancing persistent fossil fuel emissions and halting further temperature increases. Durable CDR is progressively getting more recognition as an effective, potentially economically viable strategy for sectors with significant emissions reduction challenges, such as aviation and cement manufacturing. Biochar has the potential to eliminate 0.44 to 2.62 gigatons of CO2 each year, contributing to as much as 35% of the CDR needed in efforts to stabilize the climate.

The enthusiasm for biochar in the marketplace is on the rise. It is particularly attractive for its ability to secure carbon over extremely long periods and to improve soil conditions, making it an appealing fit for carbon offset initiatives and green investment strategies. Beyond its traditional use in farming, biochar’s adaptability has caught the attention of various sectors, including water purification and materials engineering, thereby widening its commercial prospects.

Key sectors for biochar include agricultural operations, animal farming, maintenance of forests and grazing lands, rehabilitation of lands post-mining, management of urban green areas such as parks and golf courses, gardening, crop cultivation, and niche industrial roles where it can replace activated carbon. Its growing applications in water filtration systems and building materials are also diversifying the ways biochar can be utilized, signaling an expansion of its market reach and utility.

The biochar zeal is also fueled by its role in the circular economy, converting agricultural and forestry residues into valuable products that sequester carbon and enhance agricultural productivity.

Market Growth

Since 2021, the sector of long-lasting CDR credits has experienced rapid expansion. It has evolved from a handful of providers and scant deliveries in 2020 to a vivacious ecosystem of hundreds of companies developing diverse removal techniques in today’s market. This remarkable growth has led to the sale of 4.5 million tonnes (Mt) of CDR credits and the delivery of over 0.1 Mt in 2023, bolstered by a strong community of purchasers and financiers.

Figure 2 below provides an overview of the top suppliers in the biochar industry. In 2023, biochar was responsible for the lion’s share of CDR credit deliveries, accounting for 94%. The forefront providers for that year included Pacific Biochar, Wakefield Biochar, and Aperam BioEnergia, who played significant roles in the volume of deliveries for the year. A noteworthy point is the trend among many companies to sell more credits than they have produced, highlighting the role of forward purchase agreements. These agreements are pivotal in facilitating the scaling up of biochar production and adoption.

From the buyer side, Microsoft, Amazon, and Frontier have been some of the leading purchasers of CDR credits, including biochar (Figure 3). Despite biochar’s significant role in deliveries, it accounted for only 6% of the purchase volume. Top of Form

The price for biochar credits witnessed a substantial fall from $212 in 2022 to $131 in 2023, a 38% decrease. Investment in Biochar also saw a notable distribution across different funding stages, totaling $74 million, with the bulk in Series A and B rounds. While at first glance, falling credit prices might appear negative, they broaden the opportunity for a more diverse group of buyers who may not possess the deep pockets of the existing purchasers.

The Future is Charcoal

In 2021, worldwide production reached around 350,000 metric tonnes per year, marking a 91% compound annual growth rate (CAGR). In 2023, the income generated by biochar producers, distributors, and equipment makers surpassed $600 million, witnessing a CAGR of 97% from 2021 to 2023. That was split among producers ($330 million), equipment manufacturers ($241 million), and distributors ($39 million). Revenue is anticipated to surge to almost $3.3 billion by the year 2025.

According to a recent report from the European Biochar Industry (EBI), the production capacity of European biochar is poised for a significant increase of over 50%, reaching 115,000 tonnes this year. This surge is driven by escalating investments fueled by robust demand for CDR solutions.

EBI identified 54 biochar production facilities either under construction or scheduled for commissioning in 2024, an increase from 48 in the previous year. Additionally, there are 40 more projects in the late stages of planning, set for commissioning in 2025. This expansion is expected to boost the total production capacity by an additional 35,000 tonnes. Despite this growth, EBI emphasizes that investment momentum must intensify significantly to achieve production levels in the multi-megaton range by 2030.

Well, money is flowing in.

For example, German biochar producer Novocarbo just obtained $27 million from SWEN Capital Partners to expand its CDR operations across Europe. This financing is one of the largest CDR-focused investments in Europe over the past year. Founded in 2017, Novocarbo has established three carbon removal sites in Germany that also generate renewable energy and produce biochar. The company recently secured three long-term carbon credit deals, covering over 8,000 tonnes of CO2.

Another European company, Swedish startup Planboo (Sweden) raised over $1.1 million this week to enhance its technology for measuring and verifying carbon removal, focusing on biochar projects in remote tropical areas. Planboo leverages hardware and software Internet of Things (IoT) for precise monitoring of carbon removal efforts. With five projects underway in Namibia, Sri Lanka, and Thailand, and three more planned in Ghana, Zambia, and Kenya, Planboo aims to produce three million carbon credits in five years.

Also in Africa, Kenya’s Bio-Logical will provide Microsoft with 10,000 CDR credits, marking the largest transaction of its kind for this type of project in Africa. The initial agreement covers credit supply for this year and 2025, from a facility located near Mount Kenya. Bio-Logical plans to incorporate its biochar into organic fertilizer for distribution to smallholder farmers, aiming to rejuvenate the land, enhance crop drought resilience, and increase agricultural yields by over 50%.

Toucan.earth is trying to make it easier to move climate finance around biochar, hoping to offer a simplified process for buying, selling, and retiring CDR credits. They recently launched their digital platform soon, which will be the world’s inaugural ‘liquid’ market for biochar credits.

Not So Fast..

Yet despite all the hot action around biochar, several challenges must be addressed to fully scale and harness its potential for carbon sequestration and environmental benefits.

One of the primary roadblocks is the financial investment required for establishing and operating pyrolysis facilities, which can be substantial. These facilities need to be equipped with advanced technologies to efficiently convert biomass into biochar while capturing and utilizing the by-products.

IBI’s analysis revealed that currently, over half of the biochar producers worldwide are not involved in generating biochar carbon removal credits. A prominent factor for this is the requirements of carbon crediting systems, which often exclude projects operational before the establishment of these standards, due to the principle of ‘additionality’ – the idea that projects should only be funded if they need carbon finance to be viable.

IBI also pointed out that the lack of developed markets for biochar, especially in the agricultural sector, presents a potential impediment to the industry’s expansion, emphasizing the need for strategic interventions to overcome these obstacles and facilitate the scaling of the biochar industry.

Another challenge is the logistical and supply chain complexities associated with sourcing sufficient biomass feedstock, which is being experienced in parts of Asia. This includes issues related to the collection, transportation, and storage of feedstock, which can vary widely in terms of availability, composition, and quality. Ensuring a consistent and sustainable supply of biomass, without competing with food production or leading to deforestation, is crucial for the scalability of biochar production.

Finally, there is a need for robust market mechanisms that can ensure a fair and profitable return on biochar and its associated carbon credits. This includes establishing clear, standardized methods for quantifying the carbon sequestered by biochar, essential for integrating biochar into carbon markets and attracting further investment.

Conclusion

Despite facing numerous obstacles, biochar stands on the brink of becoming a major market player, thanks to its multiple benefits in carbon sequestration, soil health improvement, and agricultural productivity enhancement. The dual ability to act as a durable carbon sink and a driver of sustainable agricultural practices positions biochar as a key tool in the fight against climate change. Growing awareness of its benefits, coupled with advancements in technology and supportive policies, could pave the way for overcoming current hurdles.

Ultimately, the biochar industry’s potential for significant growth is underpinned by its contribution to climate mitigation efforts, economic opportunities, and the advancement of global sustainability goals.

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